Payday lender Wonga to pay-out £2.5million to customers in compensation

COMPENSATION: Richard Lloyd of Which? is quoted saying 'Wonga deserves to have the book thrown at it' [IG]

The UK's biggest short-term lender sent letters from bogus law firms threatening borrowers in arrears.

In some cases it added administration charges to customers' accounts for sending the threats of legal action. The Financial Conduct Authority said consumers were put under "great pressure" to make repayments many could not afford.

“We would like to apologise unreservedly to anyone affected and for any distress caused. The practice was unacceptable and we voluntarily ceased it nearly four years ago ”

Tim Weller, acting chief executive

Wonga used the names Chainey, D'Amato & Shannon, and Barker And Lowe Legal Recoveries to make customers think they faced legal action.

Last night acting chief executive Tim Weller said: "We would like to apologise unreservedly to anyone affected and for any distress caused.

"The practice was unacceptable and we voluntarily ceased it nearly four years ago."

Probe The 45,000 customers who were sent letters will be offered £50 for their distress and inconvenience.

On top of this, those who were charged fees for the letters will be refunded.

Wonga also said that, while reviewing its records, it had discovered technical errors in which almost 200,000 customers overpaid.

It will now offer these customers compensation, although the majority overpaid by less than £5. The company made nearly 4m loans to more than 1m customers in 2012.

Later this year the findings of a probe into the short-term loan industry are due to be published by the Competition And Markets Authority. Richard Lloyd of Which? said the Wonga case marked a "shocking new low" for the payday market.